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ESSENTIALS OF ECONOMICS 7TH EDITION PDF

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Essentials Of Economics 7th Edition Pdf

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Seventh Edition cover, select MyEconLab registration, log-in and follow the instructions on-screen He is also the author of Essentials of Economics ( Pearson. This new edition of the market-leading Essentials of Economics has been updated with the most recent John Sloman was Director of the Economics Network from its foundation in until , and Edition, 7th edition. essentials of economics 7e pdf the market-leading concise textbook in sloman economics 7th edition pdf - wordpress - sloman economics 7th.

Skip to main content. Log In Sign Up. Ewh3ud Hy4wn0. Introduction 1. The English word that comes from the Greek word for "one who manages a household" is a. Knowledge 2. All Rights Reserved.

Economics is the study of how society manages its a. Which of the following is a decision that economists study? Which of the following is an example of something economists study? Mitch chooses to work overtime to earn extra income for his family. Megan sells her physics textbook from last semester to her roommate for half the price of a new textbook.

The unemployment rate in the United States has fallen by two percentage points in the last few years. What term refers to the property that society has limited resources and therefore cannot produce all the goods and services people wish to have?

Which of the following is a subject that economists study? How People Make Decisions 1. The adage, "There is no such thing as a free lunch," means a. The adage, "There is no such thing as a free lunch," is used to illustrate the principle that a. Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"? Michelle can attend the concert only if she takes her sister with her.

Michael is hungry and homeless. Andrea must repair the tire on her bike before she can ride it to class. Dani must decide between going to Florida or Brazil for spring break. Which of the following examples does not illustrate the principle represented by the adage, "There is no such thing as a free lunch"? Melissa needs to pay her rent and her electric bill. Kevin must choose between buying a new flat screen television and buying his textbooks for this semester.

Robert must decide between studying for his psychology exam and working at his part-time job. Lisa can spend her money on a new smart phone or on a weekend trip. The principle that "people face tradeoffs" applies to a. Candice is planning her activities for a hot summer day.

She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that a.

This illustrates the basic concept that a. John is an athlete. This illustrates the principle that a. Lawrence is a photographer. Guns and butter are used to represent the classic societal tradeoff between spending on a. A tradeoff exists between a clean environment and a higher level of income in that a. This statement illustrates the principle that a.

Application When society requires that firms reduce pollution, there is a. Economists use the word equality to describe a situation in which a. Efficiency means that a. The property of society getting the most it can from its scarce resources is called a. Efficiency a. Equality refers to how evenly the benefits from using resources are distributed among members of society.

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that a.

Which of the following phrases best captures the notion of efficiency? Which of the following words and phrases best captures the notion of equality?

When society gets the most it can from its scarce resources, then the outcome is called a. A typical society strives to get the most it can from its scarce resources.

At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between a. When the government redistributes income from the wealthy to the poor, a. Which of the following is true? Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.

Government policies usually improve upon both equality and efficiency. As long as the economic pie continually gets larger, no one will have to go hungry. Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.

As a result of a successful attempt by government to cut the economic pie into more equal slices, a. When the government attempts to improve equality in an economy the result is often a. When the government implements programs such as progressive income tax rates, which of the following is likely to occur? A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies a.

Government policies designed to equalize the distribution of economic well-being include i the welfare system ii unemployment insurance iii progressive income tax a. Government policies resulting in reduced efficiency include i the welfare system ii unemployment insurance iii progressive income tax a. When government policies are enacted, a. None of the above are correct. Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor.

Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that a. A certain state legislature is considering an increase in the state gasoline tax. Representative Campbell argues that an increase in the gasoline tax would harm low-income drivers disproportionately.

Representative Richards responds by saying that low-income drivers own smaller cars that use less gasoline, and that low-income drivers therefore would not be harmed disproportionately.

Senator Jackson argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Feldman objects that this policy would benefit the rich at the expense of the poor. Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor.

This redistribution of wealth a. The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to a. The opportunity cost of an item is a. In economics, the cost of something is a. What you give up to obtain an item is called your a.

Which of the following is correct concerning opportunity cost? Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway.

To compute opportunity costs, you should subtract benefits from costs. Opportunity costs and the idea of trade-offs are not closely related. Rational people should compare various options without considering opportunity costs. High-school athletes who skip college to become professional athletes a. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest.

The opportunity cost of spending the money today, in terms of what you could have after one year, is a. When computing the opportunity cost of attending a basketball game you should include a. Melody decides to spend three hours working overtime rather than going to the park with her friends. Her opportunity cost of working is a. Ramona decides to spend two hours taking a nap rather than attending her classes.

Her opportunity cost of napping is a. Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is a. Since Hamid chose to study rather than to watch TV, the value of studying must have been greater to him than the value of watching TV. For most students, the largest single cost of a college education is a. For most students, the earnings they give up to attend college are a.

The opportunity cost of going to college is a. Which of the following is not an example of the opportunity cost of going to school? The money a student could have earned by working if he had not gone to college. The nap a student could have enjoyed if he had not attended class. The party a student could have enjoyed if he had not stayed in to study for his exam. The money a student spends on rent for his apartment while attending school.

For a college student who wishes to calculate the true costs of going to college, the costs of room and board a. When you calculate your true costs of going to college, what portion of your room-and-board expenses should be included? Your full room-and-board expenses should always be included. None of your room-and-board expenses should ever be included. You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college.

You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost? For which of the following individuals would the opportunity cost of going to college be highest?

If Faith attends college, it will take her four years, during which time she will earn no income. When calculating the cost of college, which of the following should you probably not include? The cost of tuition b. The cost of books required for college classes c.

The income you would have earned had you not gone to college d. The cost of rent for your off-campus apartment. When calculating the cost of college, which of the following should you probably include? The cost of your meal plan for the cafeteria. The income you earn at your part-time job. The cost of living in the dormitory. Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot. The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to pay for parking otherwise.

The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise. Only half of the cost of the parking permit is part of the opportunity cost of attending college.

The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances.

In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include a. In deciding how to spend the money, Barb narrows her options down to four choices: Finally she decides on Option B. The opportunity cost of this decision is a. College-age athletes who drop out of college to play professional sports a. A rational decisionmaker a. A rational decision maker takes an action only if the a. A rational decisionmaker takes an action if and only if a.

Rational people make decisions at the margin by a. Making rational decisions "at the margin" means that people a. A marginal change is a a. People are willing to pay more for a diamond than for a bottle of water because a. If the company produces 5, pounds of steak then a. The marginal benefit Kyra gets from eating a second sandwich is a. The marginal benefit Susie gets from purchasing a third pair of gloves is a. A rational decision maker takes an action if and only if a.

Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana a. After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year.

However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision? The marginal benefit of going to Cancun increases.

The marginal cost of going to Cancun decreases. The marginal benefit of going to Ft. Lauderdale decreases. The marginal cost of going to Ft. After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year.

However, the deadline for your final decision is still months away and you may reverse this decision. The marginal benefit of going to Spain increases. The marginal cost of going to Spain increases. The marginal benefit of going to Ireland increases.

The marginal cost of going to Ireland decreases. A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? Yes, because cutting hair is profitable. No, because he may not be able to sell more services.

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients. In advance of a particular trip, four seats remain unsold. The bus company could increase its profit only if it a. The average cost per seat is a.

This cannot be determined from the information given. The marginal cost of flying a passenger is a. The airline should sell a ticket to a standby passenger only if the passenger is willing to pay a. What should he do? It does not matter which action he takes since the outcome will be the same either way. It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way. Analysis What should Cole do? Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale.

She should make both improvements to her house. She should replace the carpeting but not replace the roof. She should replace the roof but not replace the carpeting. She should not make either improvement to her house. Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda a. Acme Home Builders, Inc. If the company produces 26 tables, then a. The marginal cost per room per night a. If the company produces graphing calculators then a.

It does not matter which action he takes; the outcome is the same either way. Any bread not sold by the end of the day is thrown away. Suppose near the end of one day Betty still has 12 loaves of bread on hand.

Betty should just throw the bread away and change the price of her bread starting tomorrow to make sure she sells all of her bread each day. A bagel shop sells fresh baked bagels from 5 a.

The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p. If the manager has 8 dozen bagels left at 6: Throw the bagels away and produce 8 fewer dozen bagels tomorrow. Starting tomorrow, lower the price on all bagels so they will all be sold earlier in the day.

Rick should a. Yvette buys and sells real estate. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Yvette purchased. She should a. You are considering staying in college another semester so that you can complete a major in economics.

In deciding whether or not to stay you should a. Kyle is planning to take a roadtrip. After he makes his plans, he has to make some unexpected auto repairs. Also, he sees the price of gas has gone up. Which of these two events should Kyle consider in deciding if it is still worthwhile to go on the trip? You have eaten two bowls of ice cream at Sundae School Ice Cream store.

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You consider eating a third. As a rational consumer you should make your choice by comparing a. Olivia was accepted by Northwestern and by another university.

She is trying to decide where to go. Which of the following should influence her decision? However, when you get there you see a friend who asks if you would rather see a new release.

Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost? Max and Maddy charge people to park on their lawn while attending a nearby craft fair.

Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that a. Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal a. Suppose your management professor has been offered a corporate job with a 30 percent pay increase.

He has decided to take the job. For him, the marginal a. Something that induces a person to act is called a. Economists are particularly adept at understanding that people respond to a.

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate? People face tradeoffs. The cost of something is what you give up to get it. Rational people think at the margin. People respond to incentives.

People are likely to respond to a policy change a. Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

Trade can make everyone better off. Markets are usually a good way to organize economic activity. Government policies can change the costs and benefits that people face. Those policies have the potential to a. Following the implementation of laws requiring automobiles to have seat belts, which of the following occurred? There was an increase in pedestrian deaths. There was an increase in automobile accidents. Evidence indicates that seat belt laws have led to a.

One effect of the government-imposed seat belt law in the U. Based on the available evidence, which of the following groups benefits most from mandatory seat belt laws? Which of the following can policy do?

Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. People respond to incentives b. Rational people think at the margin c. Trade can make everyone better off d. In the former Soviet Union, producers were paid for meeting output targets, not for selling products.

Under those circumstances, what were the economic incentives for producers? Which of the following principles is not one of the four principles of individual decisionmaking? Which of the following statements exemplifies a principle of individual decisionmaking? Governments can sometimes improve market outcomes. Which of the following is not an example of a group responding to an incentive?

Students attend class because of an attendance policy that reduces their grade for absences. Consumers buy more of a product when it is on sale at a reduced price. Universities offer fewer online classes when they generate more revenue than traditional classes.

Employees work harder to earn higher commissions. How People Interact 1. Which of the following is a principle concerning how people interact?

Comprehension 2. Which is the most accurate statement about trade? Trade can make every nation better off. Trade makes some nations better off and others worse off. Trading for a good can make a nation better off only if the nation cannot produce that good itself. Trade helps rich nations and hurts poor nations. The principle that "trade can make everyone better off" applies to interactions and trade between a. Application 4. The principle that trade can make everyone better off applies to a.

Comprehension 5. Which of the following statements about trade is false? Trade increases competition. With trade, one country wins and one country loses. Bulgaria can benefit, potentially, from trade with any other country. Trade allows people to buy a greater variety of goods and services at lower cost. Trade between the United States and Guatemala a.

England can benefit from trade a. If Switzerland chooses to engage in trade, it a. If the United States decides to trade with Yemen, we know that a.

Yemen will benefit, but trade with a less developed country could not benefit the United States. Yemen and the United States can both benefit. Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper.

This scenario is an example of which principle of economics? Prices rise when the government prints too much money. Annie is an excellent baker and Sam has a plentiful farm. Dale is a guitar teacher and Terrence is a tile layer.

Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial.

Senator Bright should argue that trade can be beneficial a. Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person.

Which country can benefit? Suppose that a country that has a high average wage level agrees to trade with a country that has a low average wage level.

Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low average wage level and a low level of output per person. Which country can benefit from trade? Only Country A can benefit. Only Country B can benefit. Both Country A and Country B can benefit.

Neither Country A nor Country B can benefit. Trade between countries tends to a. Trade a. Trade makes costs a. When the United States trades with China, a. When Ukraine trades with Italy, a.

Benefits from trade would not include a. Central planning refers to a.

Today many countries that had this system have abandoned it. Today many countries that did not have this system have implemented it. In communism, central planners decide which of the following? One advantage market economies have over centrally-planned economies is that market economies a. The basic principles of economics suggest that a.

Which of the following statements best characterizes a basic difference between market economies and centrally- planned economies? Society relies more upon prices to allocate resources when the economy is centrally-planned than when it is market-based. The self-interest of households is reflected more fully in the outcome of a centrally-planned economy than in the outcome of a market economy. Government plays a larger role in the economic affairs of a market economy than in the economic affairs of a centrally-planned economy.

Market economies are distinguished from other types of economies largely on the basis of a. The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the a. The economy of the former Soviet Union is best described as a a. Communist countries worked under the premise that a.

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by a. The failure of communism in a large number of countries is at least partly explained by a.

The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole a. Which of the following statements about markets is most accurate? Markets are usually inferior to central planning as a way to organize economic activity. Markets fail and are therefore not an acceptable way to organize economic activity.

Markets are a good way to organize economic activity in developed nations, but not in less developed nations. There is no such thing as a free lunch. People buy more when prices are low than when prices are high. No matter how much people earn, they tend to spend more than they earn. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes. The term "invisible hand" was coined by a.

Adam Smith. David Ricardo. Karl Marx. Benjamin Franklin. The "invisible hand" refers to a. David Ricardo b. Thorstein Veblen c. John Maynard Keynes d. Adam Smith's book The Wealth of Nations was published in a. The "invisible hand" directs economic activity through a.

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by a. When the "invisible hand" guides economic activity, prices of products reflect a. According to Adam Smith, the success of decentralized market economies is primarily due to a. The self-interest of the participants in an economy is guided into promoting general economic self- interest by a.

In an economy in which decisions are guided by prices and individual self-interest, there is a. In a market economy, who makes the decisions that guide most economic activity? In a market economy, economic activity is guided by a. In a market economy, a. Both a and b are correct.

Which of the following statements does not apply to a market economy? Firms decide whom to hire and what to produce. Households decide which firms to work for and what to buy with their incomes.

Government policies are the primary forces that guide the decisions of firms and households. Which of the following statements about market economies is correct? In a market economy, no one is looking out for the economic well-being of society as a whole. Market economies are characterized by decentralized decision making and self-interested decision makers. Market economies have proven remarkably successful in promoting overall economic well- being.

The decisions of firms and households are guided by prices and self-interest in a a. For markets to work well, there must be a. Prices usually reflect a. Prices direct economic activity in a market economy by a. A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect a.

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome, a.

If the government were to intervene and set the rent for apartments in New York City below the market rent, then we would expect, relative to the market outcome, a.

None of the above is correct. If the government were to intervene and set the price of a dozen eggs above the market price, then we would expect, relative to the market outcome, a.

If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome, a. When the government prevents prices from adjusting naturally to supply and demand, a. One reason we need government, even in a market economy, is that a. The ability of an individual to own and exercise control over scarce resources is called a.

The government enforces property rights by a. A company that formerly produced music CDs went out of business because too many potential customers bought illegally-produced copies of the CDs instead of buying the product directly from the company. This instance serves as an example of a. For which of the following problems can well-designed public policy enhance economic efficiency?

Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial.

Senator Bright should argue that trade can be beneficial a. Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit? Suppose that a country that has a high average wage level agrees to trade with a country that has a low average wage level. Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low average wage level and a low level of output per person.

Which country can benefit from trade? Only Country A can benefit. Only Country B can benefit. Both Country A and Country B can benefit. Neither Country A nor Country B can benefit. Trade between countries tends to a. Trade a. Trade makes costs a. When the United States trades with China, a. When Ukraine trades with Italy, a.

Benefits from trade would not include a. Central planning refers to a. Today many countries that had this system have abandoned it. Today many countries that did not have this system have implemented it. In communism, central planners decide which of the following? One advantage market economies have over centrally-planned economies is that market economies a.

The basic principles of economics suggest that a. Which of the following statements best characterizes a basic difference between market economies and centrally- planned economies? Society relies more upon prices to allocate resources when the economy is centrally-planned than when it is market-based. The self-interest of households is reflected more fully in the outcome of a centrally-planned economy than in the outcome of a market economy. Government plays a larger role in the economic affairs of a market economy than in the economic affairs of a centrally-planned economy.

Market economies are distinguished from other types of economies largely on the basis of a. The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the a. The economy of the former Soviet Union is best described as a a. Communist countries worked under the premise that a.

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by a. The failure of communism in a large number of countries is at least partly explained by a. The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole a. Which of the following statements about markets is most accurate?

Markets are usually inferior to central planning as a way to organize economic activity. Markets fail and are therefore not an acceptable way to organize economic activity. Markets are a good way to organize economic activity in developed nations, but not in less developed nations.

There is no such thing as a free lunch. People buy more when prices are low than when prices are high. No matter how much people earn, they tend to spend more than they earn. Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes. The term "invisible hand" was coined by a. Adam Smith. David Ricardo.

Karl Marx. Benjamin Franklin. The "invisible hand" refers to a. David Ricardo b. Thorstein Veblen c. John Maynard Keynes d. Adam Smith's book The Wealth of Nations was published in a. The "invisible hand" directs economic activity through a. The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by a.

When the "invisible hand" guides economic activity, prices of products reflect a. According to Adam Smith, the success of decentralized market economies is primarily due to a. The self-interest of the participants in an economy is guided into promoting general economic self- interest by a. In an economy in which decisions are guided by prices and individual self-interest, there is a. In a market economy, who makes the decisions that guide most economic activity? In a market economy, economic activity is guided by a.

In a market economy, a. Both a and b are correct. Which of the following statements does not apply to a market economy? Firms decide whom to hire and what to produce. Households decide which firms to work for and what to buy with their incomes.

Government policies are the primary forces that guide the decisions of firms and households. Which of the following statements about market economies is correct? In a market economy, no one is looking out for the economic well-being of society as a whole.

Market economies are characterized by decentralized decision making and self-interested decision makers. Market economies have proven remarkably successful in promoting overall economic well- being. The decisions of firms and households are guided by prices and self-interest in a a.

For markets to work well, there must be a. Prices usually reflect a. Prices direct economic activity in a market economy by a. A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect a. If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome, a.

If the government were to intervene and set the rent for apartments in New York City below the market rent, then we would expect, relative to the market outcome, a.

None of the above is correct. If the government were to intervene and set the price of a dozen eggs above the market price, then we would expect, relative to the market outcome, a. If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect, relative to the market outcome, a. When the government prevents prices from adjusting naturally to supply and demand, a.

One reason we need government, even in a market economy, is that a. The ability of an individual to own and exercise control over scarce resources is called a. The government enforces property rights by a. A company that formerly produced music CDs went out of business because too many potential customers bought illegally-produced copies of the CDs instead of buying the product directly from the company.

This instance serves as an example of a. For which of the following problems can well-designed public policy enhance economic efficiency? Public policies a.

To say that government intervenes in the economy to promote efficiency is to say that government is attempting to a. To say that government intervenes in the economy to promote equality is to say that government is aiming to a. Which of the following could reduce economic efficiency? The term used to describe a situation in which markets do not allocate resources efficiently is a. A rationale for government involvement in a market economy is a. The term market failure refers to a.

Which of the following is not generally regarded by economists as a legitimate reason for the government to intervene in a market? Which of the following can lead to market failure? Causes of market failure include a. Market failure can be caused by a. Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of a. There is no market failure in this case. A species of snakes became extinct due to pollution in a river where the snakes once lived.

The term "market failure" a. If an externality is present in a market, economic efficiency may be enhanced by a. An example of an externality is the impact of a. Which of the following is an example of an externality? Annie purchases a new dress. Harold sells a book to Cathy, who reads the book and then gives it to James as a gift.

Gloria watches a scary movie. The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as a. If an electric power plant does not bear the entire cost of the pollution it emits, it will a.

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce a. A paper mill dumps waste into the river. A drunk driver causes an accident that injures another person.

Which of these activities will most likely impose an external cost? An athlete works out at a gym. A secretary smokes a cigarette in a crowded break room. A young mother pushes her baby in a stroller.

A construction worker eats a hotdog during his lunch break. Betty plants flowers in her garden. Bonnie gets a flu vaccine. Bridget drives her car after having too much alcohol to drink. Becky buys a new flat screen television.

Principles Of Economics, 7th Edition By N. Gregory Mankiw[ Dr. Soc]

Which of these activities will most likely result in an external benefit? A college student buys a deck of cards to play solitaire in her dorm room. An elderly woman plants a flower garden on the vacant lot next to her house. An executive purchases a book to read on a business trip. A ten-year-old uses his allowance to buy new Nike shoes. Ted purchases a dilapidated house and cleans up the yard and exterior of the house. Tim purchases an iPhone and downloads new apps.

Terri purchases a new SUV and drives it to work every day. Thomas purchases a suit and wears it on his interviews. When a single person or small group has the ability to influence market prices, there is a.

Market power refers to the a. Which of the following firms is likely to have the greatest market power? Which of the following firms is most likely to have market power? An example of a firm with market power is a a.

Air pollution from burning fossil fuels causes damages to crops and public health. Water pollution from pulp and paper mills harms plants, animals, and humans. How the Economy as a Whole Works 1. Which of the following statements is likely? The average American purchases more televisions than the average Nigerian. The average American has better nutrition and healthcare than the average Nigerian. The average American has a longer life expectancy than the average Nigerian.

In the United States, incomes historically have grown about 2 percent per year. At this rate, average income doubles every a. In the United States, incomes have historically grown a. Knowledge 4. Over the past century, the average income in the United States has risen about a. The term "productivity" a. Productivity is defined as the a. The amount of goods and services produced from each unit of labor input is called a.

Knowledge 8. What is the most important factor that explains differences in living standards across countries? Almost all variation in living standards is attributable to differences in countries' a.

The income of a typical worker in a country is most closely linked to which of the following? A direct or positive relationship exists between a country's a. The primary determinant of a country's standard of living is a. The historical rise in living standards of American workers is primarily a result of a.

The fact that different countries experience different standards of living is largely explained by differences in those countries' a. Economists are puzzled by differences in standards of living around the world. Suppose the average income of a citizen of Poland is higher than the average income of a citizen of Romania. You might conclude that a.

Polish firms are faced with stricter government regulations than Romanian firms. Romania's climate allows for longer growing seasons and therefore Romania can produce large quantities of grain and other crops.

The slow growth of U. Slow growth in US incomes during the s and s was primarily due to a. Suppose a typical worker in India can produce 32 units of product in an eight-hour day, while a typical worker in Bangladesh can produce 30 units of product in a hour day. We can conclude that a.

Productivity is higher a. Most variation in the standard of living across countries is due to differences in productivity. Differences in productivity explain very little of the variation in the standard of living across countries. US citizens have better nutrition, better healthcare, and a longer life expectancy than citizens of Ghana. Which of the following conclusions can be drawn from this statement?

Average income in the US is higher than the average income in Ghana. The US has a higher standard of living than Ghana. Productivity in the US is higher than productivity in Ghana.

In a particular country in , the average worker needed to work 25 hours to produce 40 units of output. In that same country in , the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker a. In a particular country in , the average worker needed to work 40 hours to produce 55 units of output. In that same country in , the average worker needed to work 30 hours to produce 45 units of output.

In a particular country in , the average worker needed to work 40 hours to produce units of output. In that same country in , the average worker needed to work 36 hours to produce 72 units of output. In a particular country in , the average worker had to work 20 hours to produce 55 units of output. In that same country in , the average worker needed to work 28 hours to produce 77 units of output.

What is the likely explanation for the difference in wages? There is little demand for cotton cloth in Vietnam and great demand in the U. Labor is more productive making cotton cloth with a mechanical loom than with a hand loom. Vietnam has a low-wage policy to make its textile industry more competitive in world markets. To promote good economic outcomes, policymakers should strive to enact policies that a.

To raise productivity, policymakers could a. What is the most important factor that explains differences in living standards among countries? To increase living standards, public policy should a.

The increase in living standards of American workers over the past century is primarily due to a. To improve living standards, policymakers should a. Incomes of U. An increase in the overall level of prices in an economy is referred to as a. Inflation is defined as a. In the early s, a. Germany experienced a very high rate of inflation.

During the early s in Germany, prices a. In less than two years in the early s, the cost of a German newspaper rose from 0. This is a spectacular example of a. Italy in the s.

Russia in the s. Germany in the s. In the United States, the overall level of prices more than doubled during the a. President Gerald Ford referred to inflation as a. The U. Richard Nixon. Gerald Ford. Jimmy Carter. Ronald Reagan. In which of the following decades was there both high inflation and rapid money supply growth in the US?

In the s, inflation in the United States was a. Large or persistent inflation is almost always caused by a. Which of the following would a permanent increase in the growth rate of the money supply change permanently? Most economists believe that an increase in the quantity of money results in a.

In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy? In the short run, which of the following rates of growth in the money supply is likely to lead to the highest level of unemployment in the economy?

In the short run, an increase in the money supply is likely to lead to a. Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because a. Suppose the Federal Reserve announces that it will be making a change to a key interest rate to decrease the money supply. This is likely because the Federal Reserve is a. Low rates of inflation are generally associated with a.

Which of the following is the primary cause of inflation? Which of the following is the most correct statement about the relationship between inflation and unemployment? In the short run, falling inflation is associated with falling unemployment.

In the short run, falling inflation is associated with rising unemployment. In the long run, falling inflation is associated with falling unemployment. In the long run, falling inflation is associated with rising unemployment. Which of the following is an important cause of inflation in an economy? The mainstream view among economists is that a.

Which of the following claims is consistent with the views of mainstream economists? If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily fall. If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily rise. If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will permanently fall.

Essentials of Economics. Sloman, John; Garratt, Dean (Pearson, )

If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will permanently rise. The drop in the inflation rate a. We would expect unemployment to be higher. We would expect unemployment to be lower. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment? In the early s, U. What would you have expected to observe during this short period of time?

Inflation fell and unemployment fell. Inflation and unemployment were both unaffected. Inflation fell and unemployment increased.

Inflation fell and unemployment was unchanged. The relatively low inflation experienced in the United States in the s is attributable to a. During the s, the United Kingdom experienced low levels of inflation while Turkey experienced high levels of inflation. A likely explanation of these facts is that a. The tradeoff between inflation and unemployment a. Germany could have avoided the high inflation that it experienced in the s by a.

In the short run, which of the following is not correct? Increasing the money supply increases the demand for goods and services. Increasing the money supply encourages firms to hire more workers. Lowering the money supply leads to a higher level of unemployment. Policies that encourage higher employment will also induce a lower rate of inflation. In response to the deep economic downturn in the US in and , the US a.

The short-run tradeoff between inflation and unemployment implies that, in the short run, a. The irregular and largely unpredictable fluctuations in economic activity are called a. The business cycle is the a. The business cycle is measured by the a. Irregular fluctuations in economic activity are known as the a. Both the production of goods and services and the unemployment rate are used to measure a.

When a government program is justified not on its merits but on the number of jobs it will create, a. As a student of economics, you know that a. Both a and c are correct. It once took 90 percent of our population to grow our food. It now takes only 3 percent of the population to grow our food. Which of the following statements is true?

This loss of jobs has been detrimental to our economy. The government should provide subsidies to encourage more people to become farmers. This reduction in the number of farmers explains the increase in the price of food. This is progress because freed-up labor is used to produce other goods.

Scarcity means that there is less of a good or resource available than people wish to have. True b. Economics is the study of how evenly goods and services are distributed within society. Knowledge 3. Economics is the study of how society allocates its unlimited resources.

Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires. Economists study how people make decisions. With careful planning, we can usually get something that we like without having to give up something else that we like. Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff. Application 9. Efficiency means everyone in the economy should receive an equal share of the goods and services produced.

Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie. Government policies that improve equality usually increase efficiency at the same time. Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality.

An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs. The cost of an action is measured in terms of foregone opportunities. Tuition is the single-largest cost of attending college for most students. A marginal change is a small incremental adjustment to an existing plan of action. An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.

If the average cost of transporting a passenger on the train from Chicago to St. The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.

A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving.

This illustrates the principle that people respond to incentives. A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars. To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change. Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity. Trade with any nation can be mutually beneficial. Trade can make everyone better off except in the case where one person is better at doing everything.

The invisible hand ensures that economic prosperity is distributed equally. A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests. The government can potentially improve market outcomes if market inequalities or market failure exists. One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources. Market failure refers to a situation in which the market does not allocate resources efficiently.

Market power and externalities are two possible causes of market failure. Market failure is the ability of a single person to have a substantial influence on market prices. Productivity is defined as the quantity of goods and services produced from each unit of labor input. Inflation is the primary determinant of a country's living standards. Inflation increases the value of money. In the short-run, society faces a tradeoff between inflation and unemployment.

In the long run the primary effect of increasing the quantity of money is higher prices. The business cycle refers to fluctuations in economic activity such as employment and production. The broken window fallacy states that when a window breaks and someone spends money to repair it, they have created new economic activity that would not have otherwise taken place. How does the study of economics depend upon the phenomenon of scarcity?

Because economics is the study of how society allocates its scarce resources, if there were no scarcity, there would be no need for economics. Everyone could have all the goods and services they wanted. No one would have to make decisions based on tradeoffs, because there would be no opportunity cost associated with the decision.

It is difficult to conceive of a situation where time is not scarce, however. One tradeoff society faces is between efficiency and equality. Define each term. If the U. Efficiency is the property of society getting the most it can from its scarce resources.

Equality is defined as the property of distributing economic prosperity evenly among the members of society. Often, these two goals conflict. When the government redistributes income from the rich to the poor, it reduces the reward for working hard. Fewer goods and services are produced and the economic pie gets smaller.

When the government tries to cut the economic pie into more equal slices, the pie gets smaller. Policies aimed at achieving a more equal distribution of economic well-being, such as the welfare system, try to help those members of society who are most in need. The individual income tax asks the financially successful to contribute more than others to support the government.

Define opportunity cost. What is the opportunity cost to you of attending college? What was your opportunity cost of coming to class today? Whatever must be given up to obtain some item it its opportunity cost. Basically, this would be a person's second choice. The opportunity cost of a person attending college is the value of the best alternative use of that person's time, as well as the additional costs the person incurs by making the choice to attend college.

For most students this would be the income the student gives up by not working plus the cost of tuition and books, and any other costs they incur by attending college that they would not incur if they chose not to attend college. A student's opportunity cost of coming to class was the value of the best opportunity the student gave up.

For most students, that seems to be sleep. With the understanding that people respond to incentives, outline the possible outcome for teachers if the K school year is extended to 11 months per year instead of the existing 9 months per year.

The concept of working longer per year would be perceived by many teachers as a definite increase in the cost of teaching. Even with additional compensation, many teachers look at summers off as a major benefit of the education profession. If this benefit were eliminated or diminished, some teachers may perceive that the marginal cost of teaching would now be greater than the marginal benefit and would choose to leave teaching.

If there is a market failure, such as an externality or monopoly, government regulation might improve the well-being of society by promoting efficiency. If the distribution of income or wealth is considered to be unfair by society, government intervention might achieve a more equal distribution of economic well-being. Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

To lower inflation, the government may choose to reduce the money supply in the economy. When the money supply is reduced, prices don't adjust immediately. Lower spending, combined with prices that are too high, reduces sales and causes workers to be laid off.

Hence, the lower price level is associated with higher unemployment. The term refers to the size of the economic pie, and the term refers to how the pie is divided. Explain how government policies that redistribute income from the rich to the poor might reduce efficiency. They reduce the reward for working hard. As a result, people work less and produce fewer goods and services. You have a choice between going to the movies with a friend or studying economics for three hours.

If you choose to study economics for three hours, you will raise your exam grade by 10 points. Refer to Scenario What is your opportunity cost of going to the movies? Application 5. What is your opportunity cost of studying economics? The enjoyment you would have received from going to the movies with your friend. Application Scenario Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. Application 7.

What is your opportunity cost of working? Application 8. What is her opportunity cost of attending college for the year? What is his opportunity cost of attending the two-year graduate program? Give an example of a trade-off faced by society.

MADONNA from New Hampshire
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